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Should You Buy Advanced Micro Devices (AMD) Following Latest Split/Spin-Off Rumors?

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Advanced Micro Devices (NASDAQ:AMD) has reportedly asked a consulting firm to review possible scenarios in case the company decides to split into two separate businesses, or decides to spin-off one of its businesses, according to Reuters news agency.  This points towards a possible split or spin-off by AMD in the near future. The source said that Advanced Micro Devices (NASDAQ:AMD) could split its graphics business and core server business in two. AMD had considered such a move in the past, but decided against it at the time, for unknown reasons. Usually, whenever a company makes a move to split or spin-off, it is good for the shareholders, with the general train-of-thought being that separated, “pure-play” businesses tend to be valued more aggressively by the market than they are as cogs of a greater wheel. Sources claim that AMD is considering this option in order to compete with Intel, though for its part, AMD has since shot down the rumors of a split or spin-off, saying it has no such plans to do so at this time. Regardless, the question must be asked, is AMD a good stock to buy amid the latest split/spin-off speculation? Let’s try and find out.

Advanced Micro Devices, Inc. (NYSE:AMD)

In today’s marketplace there are plenty of metrics investors employ to size up stocks. Two of the most under-the-radar metrics are hedge fund and insider trading activity. Experts at Insider Monkey, a website specializing in hedge funds, have shown that, historically, those who follow the best picks of the best fund managers can outpace the market by a solid amount.

Hedge funds and other big money managers tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 142%, beating the broader market by over 84 percentage points through the end of April (see the details).

Let’s take a deeper look at AMD now, which has fallen by about 36% over the past 12 months. Last week was a big one for the stock, as it gained 13% to close the week at $2.57. We’ll start with insider transactions for AMD in 2015, of which there were none. The last selling activity took place in 2014, while the last buying activity was in 2012. No selling activity can generally be seen as a positive, as it indicates no one is willing to shed their shares at the reduced price, with shares having traded over 50% higher last summer. However, by the same token, no one is confident enough to snatch up more shares while they trade at a potential discount.

Let’s move on to the latest action surrounding Advanced Micro Devices, Inc. (NYSE:AMD).

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